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2010-05-21

How and how the RSPT is wrong?

Comments on Dennis Shanahan and Rowan Callick “Ross Garnaut backs mine tax changes”, 21/05/2010, http://www.theaustralian.com.au/business/mining-energy/ross-garnaut-backs-mine-tax-changes/story-e6frg9df-1225869389776

I was Prof. Garnaut's student at the ANU when I did my economics degree there, so he has my highest respect both personally and intellectually.

However, it seems that Prof. Garnaut may have got some of his understanding of the government RSPT incorrect, or some of his reasoning may be problematic.

Changing a tax so dramatically and applying it retrospectively does not constitute a sound public policy, because it is equivalent to communist assets seizure and redistribution.

First, the problem is that those assets do not all belong to the rich. To the contrary, some of the shareholders including superannuation members are quite poor.

Second, there is no super profit for the current shareholders of those mining companies at the current share prices adjusted for their risks. That is a simple principle of current share market trading.

In short there is no rationale for applying the RSPT retrospectively whatsoever.

Further, there is no need for the government to become a partner of mining companies to tax on mineral rents. It is completely unnecessary, and the whole design is to create a public impression that can be applied retrospectively to grab super tax revenue on ordinary company profits.

It is poor economics and even worse politics.

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